A Short Guide To Property Co-Ownership
Joint ownership of a property is a big milestone for any couple. It is also a common way that people enter the property market, especially if they’re buying to occupy.
With property prices still increasing and the urgency to buy ever-present, property co-ownership is a sensible option for anyone wanting to buy their first home or enter the market as an investor more quickly.
But before you and your bestie decide to pool your money, be warned that while co-ownership has many advantages, it does come with some disadvantages, too.
This article is intended to help anyone considering co-ownership along with the ins and outs associated with the process.
The pros and cons
Property co-ownership is when two or more people share the ownership of a property. This is a common option if you’re buying a home as a couple, and it also makes homeownership a more affordable reality for singles.
To ensure joint ownership is right for you, you need to take into account risk vs reward.
Consider the following pros and cons:
- Ability to pool your money with friends or family to buy your first home or enter the market as an investor, sooner.
- No need to save up for a full deposit.
- You can combine your borrowing power to borrow the rest from a loan provider.
- Gives you more property options to choose from.
- Reduces transaction costs as well as living costs.
- Property co-ownerships can test relationships and put your finances at risk. Friendships change, and sometimes a falling-out can happen which can be disruptive and costly to the co-owner.
- Co-owners are liable for each other’s debts if they are using the co-owned property as security for their mortgage.
- Sometimes a co-owner may not share ongoing costs which can cause tension.
- One of the owners may want to sell while the others don’t.
- Co-owning may affect your future borrowing power as some lenders see the whole co-ownership loan as your responsibility not just your share of the loan.
The legal process of co-ownership
When you enter into co-ownership of a property, you are entering a legal relationship. This is bound by a co-ownership agreement signed by you and your joint partners.
There are two main forms of co-ownership agreement: Tenancy in Common and Joint Tenancy.
Tenancy in Common allows two or more parties to have a financial share of a property and to transfer their interests independently. This offers a more flexible form of property co-ownership, allowing parties to own land in equal or unequal shares.
Joint Tenancy is traditionally used by couples. These tenants own the entire interest in the property as a couple, not as individuals. This form of co-ownership has survivorship rights which means that if one tenant passes away, the surviving tenant assumes ownership of the entire property.
What is a co-ownership agreement?
A co-ownership agreement is a written agreement that outlines the rights and legal obligations of each joint owner of a property.
The co-ownership agreement will cover who is entitled to reside at the property, who is responsible for mortgage payments and maintenance payments, and what happens in the event of death or bankruptcy.
If you are thinking about property co-ownership, it is important to seek professional legal advice to ensure all parties are on the same page and understand their mutual obligations. Without a co-ownership agreement, you risk becoming involved in costly legal fees to settle disputes.
What is co-ownership’s impact on tax?
Property co-ownership can impact taxes in different ways. If you go into joint ownership with someone, the main tax obligations affected include:
Capital Gains Tax (CGT)
According to the Australian Taxation Office (ATO), if you go into a property co-ownership, you need to establish each owner’s share or interest in the property for capital gains tax purposes.
If you are Tenants in Common, each owner makes a capital gain or loss from the property’s eventual sale according to their interest in the property. The ATO treats joint tenants as Tenants in Common with equal shares in the property.
Similar rules apply to land tax as the ATO does to CGT. This means that regardless if you are Tenants in Common or Joint Tenants, you are considered joint owners and are both seen as the primary taxpayer.
However, where each party in the joint ownership owns property outside of the co-ownership, they will be considered the secondary taxpayer.
As per the ATO, rental income and expenses for income tax purposes must be allocated according to their legal interest in the property.
If you are Tenants in Common, you must include the portion of the property’s income and expenses in your tax return according to your legal interest in the property.
For Joint Tenants, you must include half of the total income and expenses in your tax returns. The same applies to tax deductions.
You’ll want to make sure that you talk to a certified tax agent to better understand your tax obligations as a property co-owner.
What is group financing?
Co-owners of a property can apply for a joint mortgage, allowing them to combine their incomes to qualify for a higher loan amount. Once a joint mortgage is approved, all co-owners will be on the mortgage and title deed.
Similarly, property conveyancing is a legal process of transferring ownership of property from one person to another. For those in a property co-ownership, the property is transferred to your name and the names of your co-owners. A professional property conveyer can carry out the conveyance of your property once contracts have been exchanged.
Talk to the experts
Property co-ownership is a good option for some. Despite this, there are some legalities and risks you should be made aware of before going into joint ownership with someone. To help your property co-ownership process run smoothly, it’s best to talk to an expert.Share